Specified Foreign Financial Assets: When Do You Need to File IRS Form 8938?

If you own “specified foreign financial assets,” you may have an obligation to disclose these assets to the Internal Revenue Service (IRS). So, what types of assets qualify, and what do you need to disclose on IRS Form 8938? New Jersey FATCA attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains.

The Foreign Financial Asset Reporting Requirement Under FATCA

The Foreign Account Tax Compliance Act (FATCA) is a federal law Congress enacted in 2010 in order to provide the IRS with greater insight into U.S. taxpayers’ offshore holdings. Under FATCA, foreign financial institutions are required to disclose their relationships with U.S. taxpayers, and taxpayers are required to disclose specified foreign financial assets to the IRS.

For most U.S. taxpayers, the obligation to file IRS Form 8938 is the result of owning an offshore account. As the IRS explains, “savings, deposit, checking, and brokerage accounts held with a bank or broker-dealer,” are all subject to disclosure under FATCA. But, the reporting requirement also applies to other assets “held for investment and not held in a financial account,” including (but not limited to):

• Stocks and other securities issued by foreign corporations
• Bonds, notes and other debt instruments issued by foreign persons
• Foreign options contracts and derivative instruments
• Partnership interests in foreign partnerships
• Interests in foreign retirement and deferred compensation plans

Foreign currency, foreign real estate, gold, and tangible assets such as art and antiques held overseas for investment purposes do not qualify as specified foreign financial assets under FATCA.

The “Aggregate Value” Thresholds for Filing IRS Form 8938

In order to be subject to FATCA’s reporting requirement, a U.S. taxpayer must hold specified foreign financial assets that exceed the relevant “aggregate value” threshold. These thresholds are as follows:

• Unmarried Taxpayer Living in the U.S. – More than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
• Married Taxpayers Filing Jointly and Living in the U.S. – More than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
• Married Taxpayers Filing Separately and Living in the U.S. – More than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
• Taxpayers Living Abroad – Thresholds vary depending on individual circumstances.

IRS Form 8938 vs. FBAR Compliance

In addition to FATCA compliance, U.S. taxpayers who own offshore assets must also address their compliance obligations under the Bank Secrecy Act (BSA). The BSA establishes the requirement for taxpayers to file a Report of Foreign Bank and Financial Accounts (FBAR) when they have qualifying foreign financial accounts. Many taxpayers will need to file IRS Form 8938 and an FBAR each year; however, the reporting requirements under FATCA and the BSA do not overlap entirely. As a result, taxpayers must assess their FATCA and FBAR filing obligations separately, and they must ensure that they file the appropriate form (or forms) on an annual basis.

Contact New Jersey FATCA Attorney Kevin E. Thorn

If you have questions or concerns about IRS Form 8938 or FBAR compliance, New Jersey FATCA attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, can help. Please call 201-355-8202, email ket@thornlawgroup.com or contact us online to arrange a confidential consultation.